Europe and the U.S. both got off to a weak start on Tuesday, with bonds and stocks dropping simultaneously. With all this in the background, traders are asking themselves a big question: will the European Central Bank disappoint at its meeting?
There's lots of speculation on what ECB chief Mario Draghi will say at his Thursday press conference. What's clear is that the market is fully pricing in a multi—step program: rate cuts in the benchmark rate and the deposit rate, Long Term Refinancing Operations (LTRO) that will offer low-cost loans to the banks, and other operations.
The central bank did an LTRO twice before, once in December 2012 and again in February 2013. These were low-cost loans for three years. No info on the new LTRO but it will likely be similar. Also on the table is a purchase program for asset-backed securities (ABS) to free up capital in the balance sheets, so they can package them to the ECB and provide liquidity to the banks.
The big issue is quantitative easing. There is not a uniform bond market there. You have to pick and choose to decide which countries and which banks require the most help.